Organizational Structure A firm’s formal role configuration, procedures, governance & control mechanisms, and authority and decision making process Determination of how a firm completes its given work Strategy’s potential achieved when Structure congruent with Strategy New structural arrangements required as Firms evolve Existing Structures influence the future selection of strategies

A firm’s formal role configuration, procedures, governance & control mechanisms, and authority and decision making process

Determination of how a firm completes its given work

Strategy’s potential achieved when Structure congruent with Strategy

New structural arrangements required as Firms evolve

Existing Structures influence the future selection of strategies

Simple Functional Structure An organizational form in which the owner manager makes all the major decisions directly and monitors all the activities Staff serves as an extension of the manager’s supervision authority Little specialization of tasks, Few rules, & limited formalization Information systems are relatively unsophisticated Firms offerings single product line in a single geographic market

An organizational form in which the owner manager makes all the major decisions directly and monitors all the activities

Staff serves as an extension of the manager’s supervision authority

Little specialization of tasks, Few rules, & limited formalization

Information systems are relatively unsophisticated

Firms offerings single product line in a single geographic market

Simple Structure Owner/Manager Employees Employees Employees Employees

Simple Structure Advantages: Control of all Business Operations Frequent Communication Openness to Innovation Great Structural Flexibility Simple & Informal Motivation/ Reward/ Control Systems Rapid decision making Competitive advantage due to introduction of new products quickly and quicker responses as per environment needs No coordination problems Disadvantages: Lack of specialization and hence, complex tasks deterrent Very demanding on the Owner Manager Does not facilitate development of Future Managers Day to day matters & not future Strategic Orientation

Advantages:

Control of all Business Operations

Frequent Communication

Openness to Innovation

Great Structural Flexibility

Simple & Informal Motivation/ Reward/ Control Systems

Rapid decision making

Competitive advantage due to introduction of new products quickly and quicker responses as per environment needs

No coordination problems

Disadvantages:

Lack of specialization and hence, complex tasks deterrent

Very demanding on the Owner Manager

Does not facilitate development of Future Managers

Day to day matters & not future Strategic Orientation

Functional Structure Consists of a CEO with limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering & human resources Central task of CEO is to in integrate the decisions and actions of individual business functions for the benefit of the entire corporation Firms with low levels of Business Diversification One or Few related Products/Markets Groups similar tasks and activities in each divisions

Consists of a CEO with limited corporate staff, with functional line managers in dominant organizational areas such as production, accounting, marketing, R&D, engineering & human resources

Central task of CEO is to in integrate the decisions and actions of individual business functions for the benefit of the entire corporation

Firms with low levels of Business Diversification

One or Few related Products/Markets

Groups similar tasks and activities in each divisions

Functional Structure CEO Sales & Marketing Production Finance & Accounting Personnel Corporate Staff

Functional Structure Advantages: Efficiency Through Specialization Differentiates & Delegates day-to-day operating decisions Functional Specialization thereby facilitating knowledge sharing & Idea Development Facilitates career paths & professional development in specialized functional areas Retains centralized control of Strategic Decisions Disadvantages: Promotes narrow specialization & potential functional rivalry or conflict Difficulty in functional coordination & inter functional decision making Tendency to focus on local vs. overall company strategic issues Only successful in Limited Diversification

Advantages:

Efficiency Through Specialization

Differentiates & Delegates day-to-day operating decisions

Functional Specialization thereby facilitating knowledge sharing & Idea Development

Facilitates career paths & professional development in specialized functional areas

Retains centralized control of Strategic Decisions

Disadvantages:

Promotes narrow specialization & potential functional rivalry or conflict

Difficulty in functional coordination & inter functional decision making

Tendency to focus on local vs. overall company strategic issues

Only successful in Limited Diversification

Divisional Structure Functional Structure becomes inadequate for serving distinct different customer groups Divisional Structure provides the control required to deal effectively with additional levels of diversification Comprises of operating divisions each representing a separate business or distinct customer segment Coordination demands on Top Management are beyond the capacity of a functional Structure

Functional Structure becomes inadequate for serving distinct different customer groups

Divisional Structure provides the control required to deal effectively with additional levels of diversification

Comprises of operating divisions each representing a separate business or distinct customer segment

Coordination demands on Top Management are beyond the capacity of a functional Structure

Divisional Structure Advantages: Coordination & authority to appropriate level of rapid response Divisions unique environment hence, unique Strategic Orientation CEOs focus on Strategic Orientation Performance Accountability Disadvantages: Divisions Manager’s line of Authority Policy Inconsistencies between divisions Corporate Resource Allocation in terms of Resources and costs

Advantages:

Coordination & authority to appropriate level of rapid response

Divisions unique environment hence, unique Strategic Orientation

CEOs focus on Strategic Orientation

Performance Accountability

Disadvantages:

Divisions Manager’s line of Authority

Policy Inconsistencies between divisions

Corporate Resource Allocation in terms of Resources and costs

Strategic Business Units Multidivisional Structure consisting of three levels, the top level being the corporate headquarters, The SBU groups, and final level division grouped by relatedness Business Portfolio is organized into divisions related to one another within an SBU group Divisions within groups are related but groups are largely unrelated to each other Divisions with similar products or technology are organized to achieve synergy Each SBU is a Profit center controlled by firms corporate office

Multidivisional Structure consisting of three levels, the top level being the corporate headquarters, The SBU groups, and final level division grouped by relatedness

Business Portfolio is organized into divisions related to one another within an SBU group

Divisions within groups are related but groups are largely unrelated to each other

Divisions with similar products or technology are organized to achieve synergy

Each SBU is a Profit center controlled by firms corporate office

Strategic Business Units Advantages: Coordination between divisions with similar strategic concerns & product/Market environments Distinct & In depth business planning and Strategic orientation for each SBU Channels accountability to distinct business units Disadvantages: Degree of autonomy for each SBU Dysfunctional competition for corporate resources may increase

Advantages:

Coordination between divisions with similar strategic concerns & product/Market environments

Distinct & In depth business planning and Strategic orientation for each SBU

Channels accountability to distinct business units

Disadvantages:

Degree of autonomy for each SBU

Dysfunctional competition for corporate resources may increase

Matrix Organization Dual Channels of Authority, Performance Responsibility & Evaluation & Control Subordinates are assigned to both a basic functional area & a Project manager or product manager Advantages of Functional Specialization & Product/Project Specialization Balance between Strategic & Operating channels

Dual Channels of Authority, Performance Responsibility & Evaluation & Control

Subordinates are assigned to both a basic functional area & a Project manager or product manager

Advantages of Functional Specialization & Product/Project Specialization

Balance between Strategic & Operating channels

Matrix Organization Resources are allocated on the same basis Increases the number of Middle level managers exercising General Management responsibilities and exposure to strategic concern Flexibility according to Functional Specialization

Resources are allocated on the same basis

Increases the number of Middle level managers exercising General Management responsibilities and exposure to strategic concern

Flexibility according to Functional Specialization

Matrix Organization Permanent Structure Temporary/Flexible Structure Accomplish a Particular Strategic Task Temporary Advantage of Matrix Type Team Simplify & Amplify the focus of resources on narrow but strategically important product, Project or Market

Permanent Structure

Temporary/Flexible Structure

Accomplish a Particular Strategic Task

Temporary Advantage of Matrix Type Team

Simplify & Amplify the focus of resources on narrow but strategically important product, Project or Market

Matrix Organization Advantages: Variety of Project Oriented Business Activity Efficient use of Functional Managers Creativity & Multiple Sources of Diversity Middle Management Exposure to Strategic Issues Disadvantages: Dual Accountability can create confusion and contradictory prices Necessities tremendous horizontal & Vertical Coordination

Advantages:

Variety of Project Oriented Business Activity

Efficient use of Functional Managers

Creativity & Multiple Sources of Diversity

Middle Management Exposure to Strategic Issues

Disadvantages:

Dual Accountability can create confusion and contradictory prices

Necessities tremendous horizontal & Vertical Coordination

Strategy & Structure Considerations: All Forms of Organizational Structures are not equally effective Structures seem to have a limited life Sheer Growth gives rise to new structures Diversification Choice of Structure: Size Product/Service Diversity Competitive Environment & Volatility Internal Political Considerations Information/ Coordination Needs for each component

Considerations:

All Forms of Organizational Structures are not equally effective

Structures seem to have a limited life

Sheer Growth gives rise to new structures

Diversification

Choice of Structure:

Size

Product/Service Diversity

Competitive Environment & Volatility

Internal Political Considerations

Information/ Coordination Needs for each component

Corporate Stages of Development Simple, Small Business - Simple to Functional One Product/ Service or one line of products/ Services Singular or Closely related line of products/ Services - Functional to Divisional Expanded but related lines of Products/ Services : Divisional to matrix Diverse but unrelated lines : Divisional to SBUs

Simple, Small Business - Simple to Functional

One Product/ Service or one line of products/ Services

Singular or Closely related line of products/ Services - Functional to Divisional

Expanded but related lines of Products/ Services : Divisional to matrix

Diverse but unrelated lines : Divisional to SBUs